Deutsche Bank no-action letter
Israel’s Regulation of Investment Advising, Investment Marketing and Investment Portfolio Management Law (the “Investment Advising Law”) includes detailed restrictions applicable to entities offering investment advisory and portfolio management services in Israel. These restrictions include disclosure requirements with respect to the service provider’s affiliation with external financial institutions and its connection with the financial assets it is marketing, as well as a prohibition on the use of the word “advice” on the part of entities engaged in the marketing of financial products.
In November 2012, Deutsche Israel Securities Ltd. and Deutsche Bank (Suisse) SA submitted a request to the Israel Securities Authority (“ISA”) for clarification that the above provisions did not apply to their activities with Israeli clients, or alternatively assurance that the ISA would not take action against Deutsche in respect of such activities. The basis for Deutsche’s request was that the bulk of the services provided were not in Israel: “the business connection between the client and [Deutsche] will be established outside of Israel, the client account will be managed outside of Israel and in the provision of services no meetings with the client will take place in Israel.” However, the initial point of contact with the client under the program was made in Israel, which raised the concern that Deutsche would be subject to ISA regulations.
In addition, Deutsche pointed out that, because of its affiliation with a major foreign financial services company and its reliance upon the standard marketing materials prepared by the parent company (many of which made use of the word “advice” in some form), the restriction on the use of “advice” in the context of its services would create an undue burden on Deutsche.
In its response to Deutsche, the ISA noted that Deutsche’s investment marketing program did in fact contain a sufficient nexus with Israel in order to be subject to the applicable provisions of the Investment Advising Law. The ISA did, however, permit Deutsche to continue using marketing materials containing the word “advice,” provided that they be accompanied by appropriate written and oral explanation.
The no-action letter has significant ramifications for foreign financial services firms engaging with Israeli clients, as it makes clear that any point of contact with such clients in Israel could make the firm susceptible to ISA regulations, including the Investment Advising Law.
Management of individual retirement accounts
The Capital Markets Division of the Finance Ministry indicated in July 2013 that it intends to amend the regulations applicable to IRAs (among other changes) to revise the definition of “portfolio manager” under such regulations to include foreign investment portfolio managers authorised under the laws of their respective jurisdiction, provided that such country is an OECD member or otherwise rated .BBB- or higher.